IBM Takes a Gamble…and WINS! in Arizona; the Motorists are Thankful | Article

fuzzy diceWhenever she met people before “the partnership,” Penny Martucci simply told told them she worked for the Department of Transportation for the state of Arizona. She didn’t want them to know she was Assistant Director of the Motor Vehicle Division (MVD). Wait times at the MVD were routinely six hours long and she didn’t want to take the invective from angry citizens. “People dreaded coming to the office for a simple transaction,” she says.

Fast forward to last fall. The MVD was one of seven companies to win a civic award. At the awards luncheon, after Honeywell was honored, the Honeywell executive thanked the group for the award and closed his thank-you speech by saying, “How about the new MVD. Isn’t it great?”

What happened? The state outsourced to IBM.

Technically, the relationship is a partnership. Martucci says, “IBM assists us in doing our transactions on the Internet, through interactive voice response (IVR) and with modified kiosks.” But the real story is how IBM developed a relationship with MVD’s executive team – the business leaders of a state agency – willing to enter the e-government era!

IBM’s Gamble

Back in 1993 Arizona was growing rapidly. “Everyone was moving in, but no one was moving out,” recalls Martucci. The Legislature, pressured to do something about the interminable lines for MVD services, passed a law that allowed private entities to also do the work of the MVD. The idea was to have private agencies open up brick and mortar MVD offices which had access to the MVD data base.

In 1995 the MVD wanted to explore alternatives to visiting MVD offices; MVD executives were interested in this new thing called the Internet as well as interactive voice response (IVR). Martucci had seen kiosks and she thought they might work, too. The state began its search for a partner with the technical knowledge to do all three. “But we also needed someone we could trust,” says Martucci.

However, the legislation clearly stated that the state would not reimburse this partner for its work. In other words, the state would pay no development fees. The provider would have to buy its own equipment and kiosks, pay its own rent, and foot the bill for the salaries. However, they could charge a convenience fee.

Martucci says she estimated the provider would have to invest $1 million up front and then hope the drivers of Arizona would pay a convenience fee. “They had to take a chance,” she says.

The state approached many providers, “but the only company that would listen was IBM,” she says. An Arizona IBM employee was “really gung ho” and his enthusiasm got the program going, Martucci recalls.

“We saw up front there was no immediate pay back,” says Scott Whitfield, Project Executive for State and Local Government outsourcing for IBM. “But we felt this would go if the Internet goes. So the team convinced the powers that be at IBM to fund this for a couple of years.”

Getting the Project Going on Four Cylinders

Martucci invited key members of her staff and the IBM executives to her home for dinner. She made her own pasta. They dined. Then they signed the contract. “Even though we weren’t going to make money right away, we believed in Penny and the vision,” says Whitfield. “We knew she would make this work.”

Martucci says IBM worked closely with the IT department to develop every ServiceArizona application, both business and technical. “It was a combined effort,” she reports.

In November 1997 IBM began vehicle renewals on the Internet and through the IVR. The supplier charged a transaction fee of $6.95. However, citizens complained about the Internet fee immediately. “They said, ‘If we’re doing this online, it should be cheaper, not more expensive,'” Martucci recalls.

The Legislature realized it had a problem. In 1998 it passed a law that allowed its providers to keep two percent of the license fee they collect and $1 on each vehicle registration. However, if the transaction has no fee attached (like a change of address or the sale of a vehicle), IBM earns no fee.

But now the supplier had the ability to make more money by increasing its transaction volume. And that’s exactly what happened. Today Arizonans can do 32 different MVD transactions on the Net.

Nowadays, only 30 percent of Arizona drivers actually show up at a MVD office to renew their vehicle registrations. Thirty-five percent prefer to let their fingers do the walking and renew their registrations electronically; another 35 percent send in the forms by mail. Currently residents do 370,000 transactions a month on the Internet, by IVR, or at kiosks. In March IBM and MVD’s Web site, ServiceArizona, handled 91,000 vehicle renewals.

ServiceArizona activity, FY2005 (July 2004-June-2005)
graphic 1

graph 2
(Numbers in parentheses indicate the date the transaction was introduced.)

“We transformed chunks of their business. We didn’t just grind out cost and do it the same way,” says Whitfield. He attributes the success to being able to understand the division’s business goals. “Our partner was the business leader, not the CIO. We viewed technology as an enabler. Our goal is and remains solving this agency’s business problem.”

How Arizona Benefited

“Now MVD offices handle the people with serious issues, and ServiceArizona handles routine transactions,” reports Martucci.

Since more and more Arizona drivers use the Internet, MVD has not had to build as many new offices or hire as many additional people to handle the state’s continued growth. The Census Bureau announced on April 15 that Maricopa County experienced the largest population growth in the US from July 1, 2003, to July 1, 2004, the latest period for which figures are available. Phoenix is located in Maricopa County. “I can’t imagine how many hundreds of people we would have had to hire if we didn’t have ServiceArizona,” she says.

The department’s public image “has improved 1,000 percent.” Today Martucci says the department receives 99.2 percent approval ratings from its online users.

In 2000 the Legislature initiated a requirement that the wait time at the MVD had to be 20 minutes or less. “Without ServiceArizona’s online service, we could never have achieved that,” says Martucci.

Citizens can anonymously email a feedback form; they can vent if they are frustrated. Instead, the Arizona executive finds words of praise. “People write, ‘I’ve never seen a motor vehicle department like this. More government agencies ought to do this,'” she reports.

One of these emails contained a recommendation about using the Internet to order personalized plates. If people wanted them, they had to come into the office and wait in line. They could try three versions of what they wanted because of the 20 minute rule; if none worked, tough; next in line. So Martucci asked IBM to develop a ServiceArizona application for personalized and specialty plates.

Now people can choose from 50 different specialty plate options on line. What’s more, they can try as many versions as they want until they find one they like. Martucci reports the sale of personalized plates went up 50 percent the application’s first year. Today sales are up 200 percent.

The Importance of Partnership

“We couldn’t have done any of this without a trusted partner like IBM,” says Martucci. “It took several years to recoup their investment. But now it’s profitable,” she reports.

She says IBM is constantly reinvesting dollars in the project. IBM frequently calls in project experts and doesn’t charge the state. “We don’t have to do a lot of R&D because IBM does that for us,” says Martucci. In addition IBM is responsible for security, confidentiality, and prevention of ID theft. “We wouldn’t have been able to keep pace with that,” she adds.

IBM is also providing a help desk to support ServiceArizona business customers.

The end result: “The people of Arizona have responded. They love it,” says Martucci.

Because of successes like this, Whitfield says IBM is seeing “more and more” governments amenable to outsourcing. They need the supplier’s technology and employee skill sets. But demographics are at work, too. Many of the baby boomers are retiring. “States need an immense amount of money to replace them,” he adds. Outsourcing is a way to contain the cost as well as keep the citizens happy.


1 Comment on "IBM Takes a Gamble…and WINS! in Arizona; the Motorists are Thankful | Article"

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